Yahoo Finance Is New Toyo International Holdings Ltd’s (SGX:N08) Balance Sheet A Threat To Its Future?
While small-cap stocks, such as New Toyo International Holdings Ltd (SGX:N08) with its market cap of S$103.26M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into N08 here.
How does N08’s operating cash flow stack up against its debt?
Over the past year, N08 has maintained its debt levels at around S$49.60M made up of current and long term debt. At this constant level of debt, N08 currently has S$53.98M remaining in cash and short-term investments for investing into the business. Additionally, N08 has generated S$17.57M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 35.42%, indicating that N08’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In N08’s case, it is able to generate 0.35x cash from its debt capital.
Can N08 pay its short-term liabilities?
At the current liabilities level of S$74.28M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of S$165.91M, with a current ratio of 2.23x. For Forestry companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does N08 face the risk of succumbing to its debt-load?
With debt at 21.95% of equity, N08 may be thought of as appropriately levered. N08 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if N08’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For N08, the ratio of 22.04x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as N08’s high interest coverage is seen as responsible and safe practice.
Next Steps:
N08 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how N08 has been performing in the past. You should continue to research New Toyo International Holdings to get a more holistic view of the stock by looking at:
Historical Performance: What has N08’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
